General Magic calls its quits

The formerly hot Silicon Valley company once enjoyed investments from Apple and Microsoft and let rabbits wander free around its offices to inspire creativity.

Michael Kanellos Staff Writer, CNET News.com
Michael Kanellos is editor at large at CNET News.com, where he covers hardware, research and development, start-ups and the tech industry overseas.
Michael Kanellos
3 min read
General Magic, a once-hot Silicon Valley company that seemed to change its business plan every couple of months, has finally called it quits.

The Sunnyvale, Calif.-based company, which most recently provided technology to General Motors' OnStar dashboard computing service, announced Wednesday that it would wrap up operations because it could not obtain additional financing.

Most of the company's employees will leave immediately, although a small group will remain for 60 to 120 days to wrap up General Magic's affairs and deal with creditors. A team of 15 employees will also help transfer the operations of OnStar Virtual Advisor to another service provider.

"A combination of factors led us to this decision," said Kathleen Layton, General Magic's president and CEO. "Current adverse economic and market conditions, along with the continued slowdown in IT spending, were significant factors in preventing us from raising money or facilitating a merger or acquisition. Without the immediate availability of additional funding, our board has reluctantly concluded that the company cannot continue to operate."

In the second quarter, which ended in June, the company reported revenue of $2.1 million and net losses of $5.4 million. The company also recently underwent a 1-for-14 reverse stock split.

The grinding demise stands in stark contrast to the company's audacious beginnings. Founded in 1990, General Magic initially sought to change the way the world computes by developing more intuitive computer interfaces. Rabbits roamed free around the office to inspire creativity, said sources, and reinforce the "magic" part of the brand. Apple and Motorola were early investors.

One of the first projects to emerge was Magic Cap OS for handhelds, which let people set their own rules for message alerts and acquiring information. The company formed alliances with Sony, Philips and British Telecom, among others.

With AT&T, for instance, the company helped create AT&T PersonalLink, which let PDA users receive and send faxes and e-mails and perform calendar functions. Motorola used the MagicCap OS on its Envoy PDA while Sony used the OS on its MagicLink PDA. An IPO took place in 1995.

Unfortunately for General Magic, the world wasn't ready for handhelds yet, and these products all slowly crept toward the tar pits. "Rosemary," or MagicCap 3.0 as it was officially known, was more visually oriented than Microsoft's version of Windows CE out at the time or Apple's Newton, but hardware makers showed little interest.

In 1996, as the Internet boom began, General Magic came up with Telescript, a software-agent technology that would search the Web and automatically retrieve information such as stock quotes and airline ticket prices.

In 1997, when the agent craze began to die down, General Magic announced it was taking a new direction: voice recognition. Products that came out of this effort included Portico, software for accessing the Web and e-mail messages through voice commands, which then-CEO Steve Markman described as "the electronic equivalent of an executive assistant." Another offering that arose was MyTalk, which let consumers get voice messages and e-mail over phones. Microsoft also made a small investment in the company at this time.

Throughout these years, finances were somewhat precarious. Losses, layoffs and management reorganizations were periodic events. From 1990 to mid-1996, the company lost more than $74 million.

By 1999, General Motors decided to tap the company for work on its OnStar service, which lets drivers get directions and other roadside assistance in their cars through a voice connection.

Still, the next big thing continued to elude the company. While General Motors continues to invest in OnStar, voice recognition and voice activation software has yet to hit the mainstream. In 2001, Layton became chief executive officer, taking over for Markman, who remained on the board of directors.